South Korea is currently one of the few economies worldwide experiencing a productivity boost from artificial intelligence, though escalating tensions between the U.S. and China regarding semiconductor supplies may hinder its growth, according to analysts at Bank of America.
The semiconductor sector represents 17% of South Korea’s exports, and the nation has been identified as the largest beneficiary of the AI surge, with exports rising over 50% year-on-year, as reported by Bank of America Global Research. Analysts believe that South Korea’s substantial investment in AI research and development, along with an increasing number of AI-related patents, will enhance its standing in AI implementation in the long run.
However, analysts caution that geopolitical issues might affect the semiconductor supply chain, particularly the ongoing tensions between the U.S. and China, which could present challenges to AI development in South Korea. Despite efforts to diversify chip exports away from China, the report highlights that over 30% of South Korea’s chip exports in 2023 still went to China and Hong Kong, with exports to the U.S. being comparable.
The report further states that if geopolitical tensions escalate and the U.S. imposes additional trade restrictions on advanced AI-related chip exports to China, it could severely impact Korea’s memory semiconductor exports.
Furthermore, South Korean chip manufacturers rely on China for various chipmaking components and equipment. Disruptions in the supply chain due to rising tensions could make it more challenging for South Korean companies to obtain the necessary tools for chip production.
Reports indicate that the U.S. has requested South Korea to limit exports to China of equipment and technology required for manufacturing memory chips and advanced logic chips, specifically those more advanced than 14-nanometers for logic chips and beyond 18-nanometers for DRAM memory chips. South Korean officials are reportedly considering this request due to potential consequences for major domestic firms, including Samsung and SK Hynix, which have operations in China, the nation’s largest trading partner.
In parallel, the Biden administration is said to be contemplating the implementation of an export control known as the foreign direct product rule, impacting allies that continue to supply chipmaking tools and equipment to China. This rule prohibits the export of any product to any country if it contains a certain percentage of U.S. intellectual property components.